Goalposts shift but super's still super

Just when it's finally come good, the rules for super just changed. Again.

If it's not the market, it's the government. Can't win, can you?

At least the market has come to the party. Anybody about to retire is in a better place than before the global financial crisis.

Besides, the government will set up a Council of Superannuation Custodians, a sort of charter of super honesty, to protect all future nest eggs from, well, it.

At least changes to super are never retrospective and it remains the best way to save for retirement.

Share prices might still be straggling - though counting the dividends paid since, the market is almost where it was before the GFC - but the average super fund has 30 per cent to 40 per cent of other things in it that didn't dive.

The point is the sharemarket and super aren't one and the same.

Super is a legalised tax dodge - the deal is you can't touch it until you retire - and so within its tight embrace your money can be invested wherever you like.

Yes, it could all go into shares if you wanted, as arguably it should for anybody under 40.

Market crashes come and go but your super will have plenty of time to get over them, as long as you don't panic and switch into the cash option, in which case you would miss the inevitable upswing.

Since 1900, the sharemarket has risen in eight out of every 10 years. All right, in the past decade it's been seven, but a 70 per cent strike rate isn't too bad, either.

Mind you, there's nothing to stop the other 30 per cent coming along on the eve of your retirement.

That's exactly what happened to so many after the GFC.

But that's not a problem with super, even if fund managers have a lot to answer for.

Rather, it's failing to adjust how it's invested as you near retirement.

The thing is that even if it's chock-a-block with shares, super is still the better way to build a nest egg since the tax rate will be 15 per cent - no, more like zero or even minus something because there's a 30 per cent credit from franked dividends - and only 10 per cent on capital gains. When you retire, there's no tax at all.

Although it seems the goalposts are moving again, even a budget-challenged Treasury has an incentive to keep the tax on super below personal income rates. Otherwise, who would put in extra?

Politicians come and, thankfully, go and Treasury doesn't want a pension blowout down the track. And the only viable tax-reducing alternative to super is negative gearing, which would be another cost to Treasury. Losing revenue and having to pay more pensions - I don't think so.

Hmm, wouldn't negative gearing be better than super and to hell with Treasury?

Buying a property where the rent is less than your expenses, such as interest, gets you away from the sharemarket and gives you a tax break of more immediate benefit.

But you would need a huge, retirement-funding capital gain to make up for the losses along the way. True, negative gearing gives you a head start because you're investing everything on day one.

But over time super starts catching up because every year you're adding to it, or at least your boss is. And think of it this way: in bad years the sharemarket throws up bargains that some of your contributions to super will be snaring.

Read David Potts in Weekend Money, with The Sunday Age every Sunday.

Twitter @money potts